A multi family to condos? NOT your typical conversion

[Sergey A. Petrov]

Here is an interesting one that I’ve toyed with over many years but never actually pursued. Any thoughts would be greatly appreciated.

generally speaking, individual units get a higher sale price than multi family on a per unit basis. So if you have a 4-plex at $1m each unit would be $250k. If I comp those four units individually (like for like with all things considered) they might be worth $300k.

I am very familiar with apartment to condo conversions and what all that entails. That is NOT my question.

Every once in a while you see these 4-8-12 unit complexes that were built and initially setup as condos but have been owned and operated (and bought and sold) as apartment complexes for years and years and years. So this would not be your typical conversion. They, legally, already are condos.

What am I missing? Buy for $1m, spend some money “re-establishing” the condo association and sell them off at $1.2m. I am a pro at condos and have the right team in place to get the legal, insurance, financial, etc matters in place fairly quickly and easily. The above $1m to $1.2m is hypothetical and I am capable of calculating the holding costs and the selling expenses. Every time I come across one of these and run the numbers they make sense and come ahead of any other short term play. 

There must be something I am not seeing…any words of wisdom? Has anyone done it? Thanks in advance!

[Greg Scott]

I'm sure you may be able to make some money if you can execute.

On the other hand, I've run across several apartments that started doing a condo conversion, selling off units, and then the market shifted and the seller couldn't sell the rest of the condos at a good price. We call these "fractured condos" and they tend to be dogs. Apartment buyers don't really want them because they now have to deal with an HOA. Condo buyers don't want them because they are at the mercy of the owner of the rest of the building. There is your downside risk.